A recent Law.com by Alaina Lancaster, “Proskauer Rose Legal Malpractice Suit Claims Firm Charged ‘Excessive and Unconscionable’ Fees in Trustee Dispute,” reports that Proskauer Rose allegedly billed siblings embroiled in litigation over a family trust millions of dollars after initially estimating that their fees would total $100,000 or less, according to a legal malpractice suit filed May 5. 

The suit, surfaced by Law.com Radar and filed in Los Angeles County Superior Court, claims Proskauer Rose and Andrew M. Katzenstein, a partner in the firm’s private client services department, engaged in unnecessary and excessive work and improper billing practices, such as block billing and charging “unearned, unreasonable, excessive, and unconscionable fees,” according to the complaint.  Trustees Sharyl Gabriel and Susan Louise Gabriel-Potter claim that Proskauer Rose also overstaffed the underlying trust disputes involving their brother Robert Gabriel, additionally inflating costs.

The suit—filed by Makarem & Associates’ Ronald Makarem and Samuel Almon in Los Angeles—also asserts that the firm assigned attorneys who were not licensed in California to perform legal services in the litigation.  The filing alleges that Proskauer partner Matthew Triggs in Boca Raton, Florida, and Bridget Devoy—a former associate at the firm in Los Angeles who is now a counsel at McDermott Will & Emery—were tapped to work on the underlying matter without being licensed in California.  The suit asserts Devoy wasn’t licensed in California until May 14, 2018, but worked on the matter in 2017.

The lawsuit also alleges that the firm improperly advised the trustees on several matters, including guiding them to pay excessive distributions to Robert from the trusts.  “This advice was below the standard of care because, among other reasons, the distributions were not legally required, and were used by Robert to wage litigation against parties including Plaintiffs, which in turn caused Plaintiffs to incur damages, including legal fees incurred defending the litigation brought by Robert,” the complaint said.

A recent Law.com by Riley Brennan, “Nearly $700K in Attorney Fees and Costs Awarded Following $8M Judgment in Wrongful Incarceration Case,” reports that, following an $8 million civil rights judgment his favor, a former Massachusetts prisoner and his Chicago-based counsel were awarded an additional $743,395.87 in attorney fees and costs.  U.S. District Judge Timothy S. Hillman of the District of Massachusetts partially granted and partially denied a former prisoner’s motion for attorney fees and costs, awarding the plaintiff $675,194.88 in fees and $68,200.99 in costs in an April 7 opinion.

The case originated from plaintiff Natale Cosenza’s Section 1983 action, which alleged constitutional claims against various defendants, including the city of Worcester and multiple Worcester police officers, “stemming from his conviction and 16-year incarceration for armed burglary.”

 A jury ultimately found two of the defendants—Kerry Hazelhurst and John Doherty—liable for violations of plaintiff’s civil rights and awarded $8 million in compensatory damages and $30,000 in punitive damages.  Cosenza then moved for the awarding of attorney fees and costs, with defendants arguing against the proposed rates, billing, hours, and costs.  Hillman determined that most of the billing was appropriate, with the majority of the plaintiff’s attorneys’ rates being reasonably allocated.  However, there were three exceptions.

According to Hillman, “three partners spent a significant amount of time drafting motions, work that is typically done by associates and reviewed by partners.  Those three partners will be reimbursed at the mid-level associate rate of $300 for those hours.  Similarly, work on the ministerial portions of fee petitions is reimbursed at a reasonable paralegal rate of $100 an hour.”

Further, Hillman determined from the three attorneys’ descriptions that “only one described their work as legal,” and thus only that attorney’s hours should be “reimbursed at the associate rate, as there are substantive legal issues raised in the fee petition.  The other attorneys will be reimbursed at a paralegal rate for those hours.”

Plaintiff’s also requested for reimbursement of the services of an investigator, which defendants argued against, finding “that there should be no reimbursement for the services of an investigator where the case ultimately turned on the evidentiary record from the original criminal case.”  However, the court didn’t agree.

According to Hillman, the defendants failed to cite any case law for their argument.  Additionally, it did not strike the court as “unreasonable to hire an investigator in a case where the plaintiff’s allegations were that the police lied and destroyed evidence, even if the plaintiff is unable to point to a specific piece of evidence the investigator discovered that was introduced at trial.”  Thus the court, in factoring the investigator’s travel costs to serve defendants and conduct her investigation, determined $100 an hour was a reasonable rate.

In terms of the plaintiff’s counsel’s hours, defendants argued that the case was severely overstaffed, and that two attorneys would have been sufficient.  According to the court, this assertion was on the theory that the case as the case was defended by two attorneys, two attorneys was sufficient for plaintiffs.

“First, reasonable staffing for bringing and prosecuting a civil rights case is not identical to reasonable staffing for defending a civil rights case.  Apart from the normal burden of proof the plaintiffs must shoulder, they must overcome qualified immunity and evidentiary hurdles. But more importantly, the defendants’ objection to facing down 11 opposing attorneys is misleading,” said Hillman.

Hillman disagreed with the defendants’ assertion, highlighting that five of the total eleven attorneys requested minimal hours.  The remaining attorneys, that requested substantial hours, “were split into pre-trial and trial teams of three attorneys each.  Thus, at any given time in the litigation, plaintiff had three counsel and defendants had two—given the structural differences noted above, not an unreasonable staffing discrepancy.”

A similar structure was set up amongst the counsel’s paralegals, leading the court to conclude that a reduction for overstaffing was not warranted.  The court also rejected the defendants’ argument “that because their counsel worked 536 hours between May 4, 2022, and February 13, 2023, and the plaintiff’s counsel worked 770 hours during that time period, the time spent by defendants’ counsel is reasonable and a 30% reduction is in order.”

“Defendants cite no case law to support this position, which would allow an across-the-board reduction for a discrepancy in hours that is not even reflective of the total time spent on the case nor, in the court’s view, particularly egregious,” said Hillman.  “The relevance of that time period is also unclear to this court.  This court does not find a reduction for overbilling warranted on that ground.”

Defendants’ assertion that the time spent “getting attorneys up-to-speed on the case or discussing and strategizing about the case are not billable and request a 10% reduction,” was also rejected by Hillman, who didn’t find the “conferencing” hours for such a complex case unreasonable.  However, the plaintiff’s request for a 50% increase for their success was rejected.  “This was an unusual case, but this court does not find it justifies an increase.  And while this court recognizes the skill of plaintiffs’ counsel, that is reflected in the lodestar,” said Hillman .

The court also rejected the defendants’ counterargument, that due to the plaintiff’s “mixed success,” a 50% decrease was appropriate.  The court rejected the defendants’ theory that a downward variance was appropriate as the plaintiff achieved “nominal success,” finding that an $8 million judgment wasn’t merely considered a “nominal” success.

“Still, the plaintiff’s losses along the way must be accounted for,” determined the court.  “The plaintiff’s counsel did not delineate what they were working on in their fee petition.  That means a blanket reduction is necessary if the claims are not severable.”

“The legal theories and facts in this litigation are neither wholly severable nor so overlapping that they are incapable of independent analysis,” Hillman continued.  “The failure to intervene and malicious prosecution legal theories, for instance, largely overlap factually and overlap to some extent legally with the conspiracy claims insofar as they are all somewhat parasitic on a due process violation.  The doctrine of qualified immunity permeated this litigation, and while this court analyzed it claim-by-claim, it would be difficult for plaintiff’s counsel to separate research done on the doctrine in that way.  That said, although the underlying alleged facts were all of a similar type—they all supported allegations that plaintiff’s conviction was the result of the bad actions of law enforcement—they were all distinct from each other.”

The court issued a 20% reduction for pretrial work and a 5% reduction for post-trial work, to account for the “minor losses” plaintiff suffered after summary judgment.  Thus, the plaintiff’s fees, after the 25% reduction, and after applying the local Worcester rates and reductions for mixed success and overbilling, is reduced from $1,766,002.50 to $675,194.88.

In regards to the plaintiff’s cost requests of $86,605.41 under 28 U.S.C. § 1920 and 42 U.S.C. § 1988, defendants objected “to costs on several broad grounds, requesting an 80% reduction” without citing any case law.

The court rejected “defendants’ across-the-board reduction,” examining their objections in turn.  The defendants pointed to what they described as plaintiffs counsel’s “remarkable” travel costs, including repeated flights “back and forth from Chicago, railway travel, hotel, car rental and other costs for client meetings, ‘investigation,’ and deposition preparation.”

According to the court, a Chicago law firm incurring travel costs to litigate in Worcester isn’t remarkable, but the “out-of-state law firms must justify out-of-state costs by showing that no similar in-state services exist.”

“Plaintiff’s counsel argues Loevy & Loevy is a specialized firm that specializes in wrongful incarceration cases, but this court finds that plaintiff could have found comparable representation in Boston,” Hillman said.  “Therefore, only travel costs from Boston to Worcester are justified.”  Therefore, Hillman said, a reduction of $15,858.06 in travel costs was appropriate.

The court also deducted $1,001.36 for the plaintiff’s counsel using a rental car for the week of the trial to go from their hotel to the courthouse, after concluding that “a taxi or ride-share service would cost an average of $40 a day, and so over a six-day trial transportation should have cost them $240.”

Costs were further reduced by $1,145, after defendants alleged that the deposition costs were duplicative, as plaintiffs had requested costs the recordings of depositions and the transcripts.  The court determined that for at least one of the witnesses the video deposition was shown at trial, and the costs of the other video recordings were deducted.  $400 in costs were deducted as not all of the plaintiff’s attorneys granted pro hac vice filed motions or argued in the court, in response to defendants objection to all ten of the attorneys receiving reimbursement for pro hac vice admission.

Thus, after “reducing out-of-state costs ($15,858.06), the car rental ($1,001.36), recordings of depositions ($1,145), and excessive pro hac vice applications ($400), this Court finds $68,200.99 in costs proper,” the plaintiff was awarded a total of $743,395.87 in fees and costs.

A recent Law 360 article by Joshua Wurtzel, “A Lawyer’s Guide To Collecting Fees From Nonpaying Clients,” reports on collecting unpaid fees.  This article was posted with permission.  The article reads:

You've done the work and sent the bill, but haven't been paid. What do you do?  This is unfortunately a question that lawyers, from solo practitioners to BigLaw partners, confront all too often.  But most lawyers struggle with the answer.  And even worse, many end up doing nothing — leaving significant receivables on the table from clients who have the ability to pay.  Struggle no longer.  Here, I offer some recommendations on how to deal with a nonpaying client. The article focuses on the law on account stated in New York.  These principles and advice are generally applicable in most U.S. jurisdictions, though you should of course consult the specific law in your jurisdiction.

Make Sure Your Retainer Agreement Gives You Adequate Protection

Good collection starts with a good retainer agreement.  There are several important clauses any retainer agreement should have.

Thirty Days to Object

Your retainer agreement should include a clause stating that if a client has an objection to an invoice, the client must make a specific objection in writing within 30 days.  Courts have upheld these types of clauses, and have further held that a client that fails to make a specific, timely objection in accordance with this clause waives objections to the invoice.

Fee Shifting

Many lawyers avoid suing clients for unpaid fees because the time spent doing so can be better spent on other, billable tasks.  But if you include a fee-shifting clause in your retainer agreement, a nonpaying client could end up being responsible for fees you incur in bringing the suit.  Make sure, however, that the fee-shifting clauses run in favor of the client as well if he or she is the prevailing party, or else it will be unenforceable.

Choice of Forum and Acceptance of Service of Process

Your retainer agreement should also include a forum selection clause in the state in which you practice so you don't have to go out of state to sue a nonpaying client.  And it should also include a clause stating that the client agrees to accept service of process by mail or email, in case you have trouble serving the client personally.

Rely on the Retaining Lien and Charging Lien

New York law strongly favors attorneys who are stiffed by their clients.  So there are some tools you can use to try to collect without having to bring a lawsuit.

Retaining Lien

When a client has an outstanding balance with his or her former lawyer, the lawyer can assert a retaining lien over the client's file. This allows the lawyer to refuse to turn over the file to the client or his or her new counsel until the outstanding balance is paid or otherwise secured.  To lift the retaining lien, the former client must either pay the amount owed to the lawyer or post a bond for that amount.

Charging Lien

Under Section 475 of the New York Judiciary Law, "from the commencement of an action," the lawyer who "appears for a party has a lien upon his or her client's cause of action," which attaches to a verdict, settlement, judgment or final order in his or her client's favor.

This section gives the lawyer a lien on the proceeds of the former client's case to the extent of the amount owed to the lawyer, with the result that no proceeds can be distributed to the former client or his or her new counsel until the former lawyer is paid.

In 1995, the New York Court of Appeals in LMWT Realty Corp. v. Davis Agency Inc. held that this lien "does not merely give an attorney an enforceable right against the property of another," but instead "gives the attorney an equitable ownership interest in the client's cause of action."

Sue for Account Stated

If all else fails and you need to sue a nonpaying client, the account stated cause of action will be your best friend.  Indeed, in New York, this cause of action allows a professional services provider to sue a client for nonpayment of an invoice if the client has retained the invoice for at least a few months and has failed to make timely, specific, written objections.  This cause of action thus provides lawyers with a substantial tool to pursue a nonpaying client.

Invoice Requirement

To state a claim for account stated, you must show only that you sent the invoices to the client and the client retained them — usually for at least a few months — without making specific, written objections.  It is thus important to maintain a record of when invoices are sent and to whom — ideally by email to an email address the client gave to receive invoices.

Oral Objections

Generally, a client must make specific, written objections to an invoice; general or oral objections will not be enough to defeat a claim for account stated. Nor will general claims by a client that he or she is dissatisfied with a particular outcome suffice.

Reasonableness of Fees

Many nonpaying clients will defend against a nonpayment suit by claiming that they were overbilled or that the quality of the work was not to their liking.  But if these objections are not made in a timely way, with specificity and in writing, courts generally hold that they are waived.

This is significant for a lawyer pursuing a nonpaying client, as most clients will defend by claiming that there was something wrong with the work done by the lawyer.  And so if an account is stated by virtue of the client's retention of the invoices, the reasonableness of the fees and the quality of the work has no bearing on the merit of the account stated claim.

Underlying Agreement to Pay

While account stated is a powerful cause of action, it works only if there is an underlying agreement to pay for the services rendered.  So a person who randomly sends out invoices without having an underlying agreement with the recipients of the invoices can obviously not rely on account stated.

But if you have a retainer agreement that properly covers the scope of the work you will be doing, you shouldn't have a problem.  Nor is there a requirement that the client has agreed to pay for the specific invoices at issue, as long as the client has agreed to pay for your services generally.

The Dreaded Malpractice Claim

Most nonpaying clients faced with a lawsuit by their former lawyer will assert counterclaims for malpractice — even if the malpractice claim has no merit.  While the lawyer must, of course, still deal with the malpractice claim, courts generally go out of their way to sever a lawyer's account stated claim from a nonpaying client's malpractice counterclaim.  This is especially so if the alleged malpractice relates to different work from what is at issue on the unpaid invoices.

Further, as a strategic matter, unless the malpractice counterclaim has merit, most nonpaying clients will drop it after the lawyer obtains a quick judgment on summary judgment at the outset of the case.

Conclusion

Suing a former client is never pleasant, and is a last resort after the attorney-client relationship has broken down. But using efficient, streamlined ways to collect from nonpaying clients can allow a law firm to provide greater value to the rest of its clients.

Joshua Wurtzel is a partner at Schlam Stone & Dolan LLP in New York.

A recent Law 360 story by Ryan Harroff, “Judge Axes Benicar Fee Suit. Says Firm Didn’t Overcharge” reports that Mazie Slater Katz & Freeman LLC beat a suit that claimed it overcharged its clients in multidistrict litigation over gastrointestinal injuries related to blood pressure drug Benicar and its generic Olmesartan after the New Jersey court found a state attorney fee rule did not apply to the MDL.  A New Jersey federal judge granted Mazie Slater's motion to dismiss the proposed class action, writing that the nearly $9 million award for the firm was "well within the reasonable and equitable percentages of Third Circuit examples."  The court agreed with the firm's argument from its dismissal bid that a state rule on attorney fees that served as the backbone of the action does not apply to mass tort MDL cases.

According to the court's opinion, named plaintiff Anthony Martino misapplied New Jersey Court Rule 1:21-7(i), which requires firms to aggregate class action fees based on individual client recoveries and seek court approval for fees over $3 million, by claiming that he and his proposed class members all had "substantially identical liability issues," a requirement for the rule, since they were all litigants in a New-Jersey resident-only multicounty consolidated litigation running parallel to the broader Benicar MDL.

According to the opinion, "there can be no rational, medical, logical, or legal justification why the claims of a subset of Olmesartan registrants could be interpreted as having substantially identical liability based merely on the fact they arose in the MCL."

The product liability MDL and MCL in question sought to hold Daiichi Sankyo Inc. and Forest Laboratories Inc. accountable for injuries suffered by Benicar and Olmesartan users.  The MDL settled initially for $300 million in August 2017 and the deal later grew to $380 million after triple the expected class members registered, according to the opinion.

Mazie Slater got $8.9 million of the total attorney fee allotment from the deal, and Martino accused the firm of running afoul of the New Jersey court rule in his November complaint, which claimed legal malpractice, unjust enrichment and conversion after firm partner Adam Slater allegedly failed to tell his clients that the firm would get "substantial fees and costs for the same, or substantially same, work that he had performed for each client and for which he received a full fee under the individual retainer agreements."

The rule does not apply to MCL or MDL consolidations, the court wrote, citing a lack of case law to support its application and the "very different and the very specific factual details" of each consolidated injury, which, according to the opinion, undercut Martino's argument the MCL litigants issues are substantially identical.

Bruce Nagel of Nagel Rice LLP, counsel for Martino and the proposed class, told Law360 that it is "nonsense" for the court to say the MCL plaintiffs do not all arise from the same liability issues since they all come from the same drug.  Nagel also said the MCL plaintiffs all had retainer agreements with Mazie Slater that included the New Jersey court rule and that he believed the Third Circuit would find that rule enforceable under those retainers.

Adam Slater of Mazie Slater Katz & Freeman LLC, who is both a named defendant and counsel for himself and the firm, told Law360 that the court's decision was "absolutely correct," and that there are many variances of liability issues in the consolidated cases, such as whether a plaintiff took the drug before or after a warning about potential side effects was added in 2013.  Slater said variances like that are why the New Jersey court rule does not apply for mass torts.

"What we did here is consistent with what every New Jersey lawyer litigating mass torts in the state and federal courts of New Jersey has been doing for over 40 years, calculating fees, and it's very clear that that rule does not apply in a mass tort setting like the Benicar case or the other mass tort cases that are routinely litigated in New Jersey," Slater said.

A recent Reuters story by David Thomas, “Ex-Client Wans $22 mln From Brown Rudnick, Saying Lawyers Overbilled” reports that an Austrian multinational construction company went on the offensive in a fee dispute with U.S. law firm Brown Rudnick, claiming the firm routinely overbilled it and demanding $22 million.  Brown Rudnick sued Christof Industries Global GmbH in September, alleging the industrial plant builder owed $8 million in attorney fees and interest from an international arbitration over a failed construction project.

But the law firm racked up more than $6 million in fees after promising in writing to not exceed a $2 million fee estimate, Christof alleged in its countersuit, filed in Boston federal court.  The law firm improperly overbilled, Christof alleged, saying one attorney billed more than $145,000 for 231 hours preparing to examine one witness.  The law firm billed more than 40 hours for assembling binders, the company said.

"In a number of time entries that verge on satire, Brown Rudnick attorneys even billed for drafting and corresponding about a proposal for their 'binder compilation strategy,'" Christof said in its suit.

The dispute stems from Brown Rudnick's work arbitrating a conflict arising from a Christof subsidiary's work as a contractor during the construction of a fiberboard production plant in South Carolina.  Christof said it signed an agreement with the firm so that its legal costs would not exceed $40,000 a month, plus a $200,000 retainer up front.  But it said Brown Rudnick billed more than $250,000, not including the retainer, just in its first month.

A panel awarded Christof more than $24.5 million in damages in the underlying arbitration, which was offset by about $20 million in advanced contract payments the company had received.  The final award was for $6.68 million.